Joke, but no one's laughing

It's just not possible to fix the near-crisis in Australian manufacturing by ignoring the sector's severe industrial relations problems.

Take one example.  The sad joke in the Australian car manufacturing industry is that "just in time" manufacturing is really "just in case" manufacturing.

But why is "just in time" a joke?  Car manufacturing is supposed to be like a river with component manufacturers seamlessly supplying product to the big companies such as Ford and Holden who do the car assembly.

To stay efficient, no company in the supply chain is supposed to hold stock.  Instead, components arrive "just in time".  For this to work, smooth, uninterrupted manufacturing and transport is essential between every company in the supply chain.

But the experience of the Australian car manufacturing industry is that industrial relations dramas cause supply disruptions so frequently that up to four days of stock is required by all manufacturers.  In the industry they jokingly call this "just in case" -- just in case there are more IR problems.

But it's no joke when it costs companies millions of dollars in tied-up cash and interest payments.

This one example, repeated in thousands of small different ways, is why Australian manufacturing is in crisis.  Enterprise agreements are a core manufacturing problem now working against efficient operations.  A manager's capacity to manage is reduced through agreement clauses that stop them controlling rosters, when and how training is to occur, how external labour can be used, and so on.

Any attempt to fix these clauses instantly causes industrial relations disruption.  Occasionally the disruptions are high profile like the this week's Icon Automotive strike, but most are low-key and unreported, involving simple things such as workers suddenly producing faulty products.

The problem is that company managers don't know how to break this cycle of captured inefficiency, other than to shift production overseas.

A great new wave of car component closures has just begun and is unlikely to be stopped.  And up to 3000 jobs are likely to go.

Food manufacturing is similarly afflicted but has a different dynamic.  Large, old plants combined with '50s industrial-style agreements and cultures are common in food manufacturing.  There are few exceptions.  The old plants are reaching the end of their lives.  New plants are hi-tech with few workers, but they must be built on time and on budget.

Unhappily, Australia has a long history of plant construction delays and cost overruns, mainly the result of bad industrial relations.  Singapore, which has higher land and labour costs than Australia, regularly wins new food manufacturing projects because they can build on time, to budget and operate properly.  Australia's approach to fixing the situation to date has mostly been to ignore the problems, hoping they'll go away.

Most commentators blame free trade agreements and lack of training.  State governments think we just need more research and development and some marketing spin.  The Federal Government has billions of dollars of subsidies allocated to car and food manufacturing, which is shaping up as a wasteful sink hole of taxpayer money.

The truth is that free trade and global markets create manufacturing opportunity rather than destroy it.

Australia's manufacturing future lies in niche markets.  But this isn't necessarily a bad thing.  We too often forget that the niches developing in China and soon to emerge in India are larger than any mass market available in Australia.

Ultimately, manufacturers will have only themselves to blame if they fail to fix their domestic issues.

With the new wave of industrial relations legislative reform about to unfold, the heat will be on manufacturing managers to fix their industrial agreements, cultures and practices.  But many commentators claim Australian managers lack the skills, capacity or inclination to do this.

And if this is true, shifting offshore is probably an easier option.

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